From what I’ve seen in recent insurance technology news updates, it appears that the insurance industry is finally ripe for change, ready to make the leap to digital technologies that will lead us into tomorrow. Or is it? Consider these core drivers of change: digital innovations such as cloud, telematics, IoT, analytics and AI, mobile, real-time 24/7 access to data, the growing need for on-demand products and, in general, using these transformative technologies to create operational efficiencies, adopt new business models and anticipate and exceed customer expectations. Even though we know these technologies are enabling new insurance products, methods, processes, services and business models, there is still an omnipresent culture that hangs on to the troubling “it’s the way we’ve always done it” battle cry. This is often voiced by insurers that share their frustrations with being challenged to change existing culture from inside out to address these digital drivers. My view is that, while many of the larger insurers are making the hard move to adopt digital technologies, it’s still not a priority for many small- to medium-sized insurance companies. And now, more than ever, there is a certain urgency to having that discussion. Tanguy Catlin, senior partner with McKinsey & Co., when addressing the issue, referred to it as the “tipping point” that is “where those that have not adapted their [digital] strategies fade away.” See also: Darwinian Shift to Digital Insurance 2.0   In research results published by MIT Sloan Management Review (SMR) and Deloitte’s Digital practice, 87% of executives queried believe that digital technologies will disrupt their industries, yet only 44% felt they were adequately preparing for it. Gerald Kane, professor of information systems at the Carroll School of Management at Boston College and MIT Sloan Management Review guest editor for the Digital Business Initiative, compares insurers' thinking about digital disruption to homeowners in disaster-prone areas who often seem caught off guard when an actual hurricane or cyclone strikes. [caption id="attachment_32193" align="alignnone" width="570"] Source: MIT Sloan Management Review[/caption] So, why isn’t adoption of digital technologies a priority for more small- to medium-sized insurers? While many see the opportunities presented by digital technologies, perhaps they don’t believe the likelihood is high that digital will actually disrupt their own organization. But the authors of the research note that, if digital technologies represent an opportunity for your organization, they also represent a threat for your competitors — and vice versa. I get it, change is hard… but, the argument, “we are not in a financial position to prioritize” is irrelevant to the discussion of digital technology investments. Competitors aren’t waiting for your company to be in a better “financial position” before they act. Moreover, because at some point in the coming years insurers will need to replace their growing faction of retirement-age employees with a younger, more tech-savvy labor force. And in a war for the best talent, the A and B players have absolutely no desire to work on outdated systems. So, what does that mean for the future of your company? See also: Digital Insurance, Anyone?   Just remember, technology is an accelerator for your company and your staff. In other words, the more digital technologies that are put into play, the greater and faster the return. Those insurers that ignore its call will fall further and further behind until they reach the tipping point and slowly fade away. Remember what happened to Blockbuster Video when it failed to adapt in a time of digital change. Don’t be a Blockbuster in a Netflix world.

Over the past 20 years, many large, sleepy industries have heard a familiar story line – “you will be disrupted due to emerging technology.” Some of those who embraced technology change found massive opportunities to improve product offerings, drive higher margins and streamline customer experiences. Others, resistant to technology or unable to move fast enough, found themselves quickly replaced by upstarts.

Looking retrospectively, I would argue that no industry to date is more on the cusp of opportunity/exposed to disruption than the property and casualty (P&C) insurance sector is today. And, of the many technology breakthroughs (insurtech) available to the P&C insurance sector as a whole, ranging from internet-based distribution to “bots” for automated customer claims, the one technology that is both the most opportunistic and the most misunderstood, is the Internet of Things (IoT) for smart home and its potential to change homeowners insurance.

Put simply, IoT reflects a growing technology movement to connect any device with electronics to the internet. By doing so, these devices and their data can be interacted with anywhere in the world. On a fundamental level, this connectivity allows for remote control of devices, changing how consumers interact with their homes. But on a deeper level this technological evolution allows for new third-party services, especially as diagnostics and performance data is made available by manufacturers.

Many sectors will benefit from this technological evolution, and as more and more home systems and appliances (everything from dishwashers and refrigerators to heating/cooling and hot water tanks) are connected the homeowners insurance space has an incredible amount to gain.

Most consumers today have a limited understanding of the smart home road map, and many assume it starts and stops with home automation – examples such as controlling your thermostat from your phone and your lights automatically turning on when you pull the car into the driveway. However, as I have discussed in an earlier online post, even the near future of smart home is much, much more.

Soon, the smart home will optimize its performance around your behaviors and recognize when something is not right, notifying the appropriate people of problems and steps for remediation. As futuristic as this sounds, you have grown to expect your car dashboard to notify you of an engine problem or your computer to let you know of a hard drive issue – these indications are nothing short of what we expect from products today and are similarly available for your home. Likewise, home systems and appliance can be carefully watched by computers capable of instantaneously notifying you, or third parties, of problems.

As huge benefactors of this technology, P&C insurers should be rushing to enable their customers to embrace this technology.

See also: How Smart Is a ‘Smart’ Home, Really? 

Here, at a high level, are some of the ways how home insurers stand to benefit:

1) Early Peril Detection Leading to Loss Avoidance – already in-market today. There are many IoT devices capable of sensing almost all of the perils associated with homeowner loss: theft, water, fire, even destructive weather such as hail and wind. Of course, minimizing loss from these perils requires action, but earlier detection helps homeowners, emergency responders and authorized third parties to respond faster, minimizing loss.

How many times have we heard stories about coming home from a vacation finding a pipe had burst and mold had grown for days, or a fire burned for hours in an unoccupied home? With devices such as remote locks and wireless cameras, you could even imagine a world where a service technician, like a plumber, could enter your home in an emergency even in your absence and could be monitored while there.

Beyond notification, devices themselves will also soon have the intelligence to respond. For instance, a hot water tank on the verge of rupture will not only notify the owner, it will also shut off its water intake and self-drain.

2) Claims Processing – Precision data from sensors is at the core of IoT innovation. In the home, practically all sensors have continual readings and time/date stamp on data points such as temperature, moisture and motion. As events happen, data is essentially cataloged for consumption by other systems like claims.

Automatically validating or measuring loss is not an unreasonable expectation of this sensor data soon. And first notice of loss (FNOL) moves from the responsibility of the claimant to an automated and sophisticated process where all parties are better-served and better-protected.

3) Fraud Analysis – The very data used to facilitate FNOL will also serve as a record-of-truth in claims analysis. Machine learning algorithms will take data from these sensors and dramatically improve models for predictive loss behavior. Just as consumers have credit scores or driving records, it’s not hard to see how home data will one day drive home safety assessments.

Probability of loss based on behavior will be a front-line indicator for likelihood of fraud. Additionally, data from these sensors, uploaded to the cloud typically at the time of capture, serves as the immutable record of truth when loss occurs. Be it rapid increases in temperature or moisture detection, re-creating how, when and where a loss started and ended will no longer be an exercise in on-site investigation but rather a review of clear data points, making the process easier and more honest for everyone.

I am willing to bet that the mere knowledge that sensor data is collected will, in itself, begin to reduce fraudulent claims.

Of course, with all of this progress, there are considerations. We are on the frontier of a new world, and, as with many technology advancements, the true impact is hard for many to truly understand.

The industry needs to think through key implications:

Consumer Privacy – As with all things in life, there needs to be balance between what you give up and what you get. Privacy is a hot topic right now, but the reality is that every day people choose to opt into programs that consume their data in return for benefit.

Transparency and parity are critical in these transactions – e.g., “You are letting us know about something about you in return for something else of this value.” When clearly presented with the facts, many consumers will willingly give data to get better service and lower premiums.

Security – Of course there are security risks with devices being connected to the internet, and they need to be thoroughly protected. But the risks are manageable. Professional organizations focused on IoT have massive security staffs trained to ensure that consumers and business using IoT data are protected.

Data Consumption – Even in an industry as sophisticated at using data as the P&C space is, the capabilities to ingest this level of data likely do not yet exist. Organizations will need to assess which data is the low-hanging fruit for their businesses and build from there. Ultimately, new partnerships in technology need to be built to ensure that data is provided in a manageable form to the insurer.

See also: What Smart Speakers Mean for Insurtech 

For those of you feeling these concepts are futuristic – they are not. From a technology perspective, everything discussed is in-market today -- at least in its early form. And while arguably many IoT products have a ways to go before being truly ready for important insurance applications, the process is aligned with a fairly typical technology life cycle.

Partnering in these early stages will help IoT vendors and insurers ensure that product features will satisfy the requirements of the larger market need. In other words, when the insurance market gets its arms around true requirements for IoT and helps create the business case for mass consumer adoption – the Internet of Things market will respond, and quickly.

Many baby boomers would be willing to give virtual healthcare a try, but they want to be sure that an e-visit or other type of remote care is just as good as the care they would get in person. They also want to be confident that their health information stays private. For seniors who live in rural areas with few doctors, telemedicine would improve their access to healthcare and be more convenient. For many people with chronic illnesses or mobility issues, making it to the doctor’s office can be an ordeal. With telehealth, they can have the doctor visit virtually. What Is Telehealth Telehealth is a collection of methods for enhancing healthcare, public health and health education delivery and support by using telecommunication technology. Today, telehealth covers four domains of applications. Each state and insurance company varies in its use and reimbursement of these applications. They are commonly known as:

• Live Video Conferencing (Synchronous): This is a live, two-way interaction between a person and a provider by using audiovisual telecommunications technology. The Center for Connected Health Policy made a micro-documentary video, "Telehealth Saves Lives," that shows how video telehealth can be a lifesaving technology.
• Store-and-Forward (Asynchronous): This will allow recorded health history to be transmitted through an electronic communication system to a practitioner, usually a specialist, who uses the data to evaluate the case or render a service outside of a real-time or live interaction. This technology will allow access to specialty care, even when there are limited board-certified specialists in the community.
• Remote Patient Monitoring (RPM): With RPM, patients will be able to transmit their personal health and medical data from one location to a provider in a different location via electronic communication technologies for use in care and related support. "Telehealth and Quality of Care" is another video from The Center for Connected Health Policy that demonstrates how remote patient monitoring can help individuals stay healthy in their home.
• Mobile Health (mHealth): This is the healthcare and public health practice and education supported by mobile communication devices like, tablets computers, cell phones and iPads. Applications can range from text messages that encourage healthy choices to large-scale alerts about disease outbreaks.

Telehealth encompasses a variety of technologies and tactics that deliver virtual medical, health, and education services. Telehealth is a collection of means to enhance care and health education, not a specific service. What Will Telehealth Do for Seniors? The older we get, the more health issues that arise. Therefore, seniors are more likely to experience chronic conditions, such as diabetes and heart disease. Both illnesses require routine monitoring from healthcare providers. With telehealth technology, doctors can now keep an eye on things such as blood pressure and sugar levels. Routine doctor's visits can be costly and difficult for seniors to attend, especially if the elderly person has mobility problems or limited access to transportation. The use of telehealth can improve communication between providers and patients, allowing physicians to monitor an older patient’s overall health. This level of monitoring can allow providers to discern when patients may be becoming sick or at risk of experiencing a medical emergency. While seniors are at a higher risk for developing chronic conditions that require care provided by specialists, specialists are not always located in every community, and travel is often warranted. This can be difficult for seniors. Telehealth removes the barriers of location and mobility, connecting more seniors with necessary care provided by specialists. Telehealth also makes it easier for family members who live far away to stay connected to their elders’ care program. This will relieve some of the stress associated with caring for seniors. See also: Navigating Telehealth for HR and Employers   When telemedicine is used, caregivers have greater access to providers. These providers can give them information that helps provide more effective care. Without a need for routine in-person visits to providers, caregivers can dedicate more time to care at home or in their own personal and professional lives. Not only is telehealth more practical for routine monitoring and time efficiency, it is a more cost-effective option for both patients and providers.

• Telehealth has the potential to make physicians more money, because telehealth allows for less time-consuming individual consultations, meaning the doctor has time to see more patients each day.
• Telehealth means big savings for patients, because consultations delivered virtually usually cost less, and money is saved when travel is eliminated.

When nursing homes adopt telehealth technologies, up to $327 million can be saved each year through a reduction in the need for emergency room visits. Telehealth is a life saver and a money saver. Medicare and Telehealth Medicare tightly restricts what it will pay for, so seniors have a harder time getting telehealth covered. Some private insurance companies are increasingly covering certain services like virtual visits. Luckily for Medicare recipients, Congress passed a law last winter that expands Medicare coverage for options such as video visits to diagnose stroke symptoms or check on home dialysis patients. Medicare Part B would cover the cost of telemedicine services, but the patient needs to fulfill certain conditions. Medicare Advantage programs are used by a third of beneficiaries and can start offering additional telehealth options. This is a step in the right direction, but it certainly doesn’t cover everything. Costs are already a major issue for people who need continuing assistance, and telehealth is still new. For telehealth to save the most money, it will need to replace in-person care, not add to it. More than half of adults of all ages would be comfortable with a video doctors visit via FaceTime or Skype to discuss medications, treatment for continuing care of a chronic illness or even for an urgent health concern. High-risk patients who use daily telehealth monitoring are less likely to be readmitted to the hospital. This isn’t about just having Skype in the home; it’s about having a team of healthcare professionals who are supporting the care of a patient. See also: Whiff of Market-Based Healthcare Change?   The Security of Telehealth The privacy and security of protected health information (PHI) is very important to insurance companies, doctors and patients. With new technology, usually, comes new challenges. With every problem comes a solution, and by making smart choices patient data can be protected. Telehealth services are legally required to abide by Health Insurance Portability and Accountability Act (HIPAA) mandates. HIPAA is concerned with the protection of patient medical records, always improving privacy and reducing fraud. To be sure the health data is safe, your telehealth system should comply with the HIPAA guidelines. To comply, you will need:

• Business Associate Agreement (BAA): This is a written contract between a covered entity and a business associate that establishes the permitted uses and disclosures.
• Transport Encryption: This must-have encryption for data security converts the sensitive information into a meaningless stream of seemingly random data.
• Storage Encryption for the Videos Stored in a Device: This will encode backed-up and archived data on storage media.
• Properly Stored Data: You have many options here like a flash drive or a cloud storage; in any case, make sure you choose a HIPAA-compliant product or service.

Telehealth can be a secure way to receive medical care and reduce further stress for seniors and caregivers. Telemedicine care is the future of healthcare. Telehealth will save money, time and patients' lives.

In a 2017 report titled “Drones: Reporting for Work,” Goldman Sachs estimated the addressable market opportunity for drones globally between 2016 and 2020 to be $100 billion, of which the insurance claims drone market was estimated to be $1.4 billion. And the report did not address the wider opportunities in personal and commercial property insurance: underwriting, pricing, risk prevention, traditional and virtual claims management, fraud detection and product marketing. The report also didn't cover the use of images from satellites and fixed-wing aircraft, including streaming video. Whatever the actual size of the total insurance market opportunity, the impact of aerial and drone images in insurance will be enormous. Industry observers are just beginning to recognize the transformation in property insurance underwriting and claims that is emerging through advanced analytics, artificial intelligence and machine learning tied to neural networks and integrated with data from aerial and drone images. Property claims investigation costs the industry an average of about 11% of premiums – automated inspection can reduce that expense substantially. And automated property inspection cycle times can average two to three days, compared with 10 to 15 days using traditional methods – lowering costs and increasing customer satisfaction. Providers will transform the property insurance industry through the convergence of these sources of better images, expanding numbers and types of connected home technologies, customer self-service and aggregated property risk data (historic and real-time). Follow the money Venture and private equity investment activity in emerging technologies is a good indicator of potential growth opportunities – these professionals typically engage subject matter experts and conduct deep market research and diligence in a highly disciplined and proven evaluation process prior to investing. Since 2012, almost $2 billion has been invested in more than 370 drone company deals, and the current run rate is more than $500 million in announced deals annually, according to CB Insights research, which states that ”19 of the 24 smart money venture investors have backed at least one drone company since 2012.” See also: How Technology Drives a ‘New Normal’   Within just the past two months, four such insurance-related transactions were announced;

• Nationwide Ventures made an investment in Betterview, a machine learning insurtech startup focused on analyzing data from drones, satellite and other aerial imagery for commercial and residential property insurers and reinsurers. This follows a September 2017 seed round funding of $2 million.
• DroneDeploy, the world’s largest commercial drone platform, raised $25 million of Series C venture capital, bringing total funding to $56 million.
• Cape Analytics raised $17 million to grow its AI and aerial imagery platform for insurance companies, led by XL Innovate.
• Clearlake Capital Group acquired a significant interest in EagleView Technologies alongside Vista Equity Partners, which had purchased EagleView in 2015. (Vista also owns the majority of Solera, parent of property and auto insurance claims services and information providers Enservio and Audatex.)

In 2017, Genpact, a global professional services and insurance claims solutions provider, acquired OnSource, which provides 24/7/365 full service on-demand drone property inspection claims and settlement services across the U.S. Earlier that year, Genpact acquired BrightClaim and National Vendor, providers of integrated claims solutions to the U.S. property insurance market In 2016, Airware, a global enterprise drone analytics company, closed a Series C round of $30 million to bring its total funding to $110 million. Early in 2016, Verisk Analytics formed the Geomni business unit to specialize in image sourcing and analysis and has since acquired a number of U.S.-based aerial survey companies and their aircraft fleets. Verisk also owns Xactware, the dominant industry provider of property insurance claims solutions and third party products. The Geomni fleet is expected to include more than 125 fixed-wing aircraft and helicopters by the end of 2018, operating from 15 hubs located throughout the U.S. Verisk expects to invest approximately $100 million in Geomni through 2018. Competition and differentiation The space has attracted a large number of participants in the past two years, and there are no signs of slowing. Competitors are taking innovative paths to differentiation, including: drone manufacturing, drone operating software for use by field staff and contractors, ground-based roof and wall measurement technologies and full-service, virtual property inspection and property damage reports using drones. Insurance industry adoption and barriers The insurance industry’s use of images from satellite and fixed-wing aircraft is fairly well-established, particularly in catastrophe response planning and claims. The North American property/casualty insurance industry has been cautious and conservative in its testing and adoption of drone use for property claims and in using aerial images for underwriting. Until recently, FAA rules had made it onerous for carriers and industry vendors to obtain licenses and permission to use drones for property inspections. However, after extensive industry lobbying efforts, assisted by more pro-business policies, that obstacle has eased significantly, and several carriers have trained staff and hired contractors to use drones for property claims inspections. Obstacles remain, including restrictions on use near airfield perimeters and outside of operators’ line of sight. Carriers are split into two roughly equal camps (by market share) on more recently introduced third party services that provide virtual property inspections: those that do not believe that drone image and damage identification technology is sufficiently accurate as yet to manage claims leakage as effectively as their own staff field adjusters – and those that do. Both groups acknowledge that drones are not appropriate for all property claims. Furthermore, customer satisfaction and therefore retention is thought to be higher when insurance company staff visit the property and the homeowner in person. The future of property insurance For claims, virtual methods of inspection will include not only drones but claims reporting that involves customers. Claim self-service, including smartphone images and video, which has seen impressive adoption and results in auto claims, is beginning to penetrate property insurance claims, particularly for reporting home interior and exterior wall damage. New, accurate 3D smartphone image measurement technology combined with higher image resolution and the expected expanded availability of much faster 5G wireless broadband will drive adoption. See also: Secret to Finding Top Technology Talent   Other methods of property inspection, particularly following extreme wind or hail events and catastrophes, will most certainly incorporate the use of drones, whether operated by insurance staff, managed repair network contractors or third-party inspection services. Also, autonomous drones performing roof inspections not requiring an operator on site may be expected soon. Finally, on the property underwriting side, we expect high-resolution geospatial image data from multiple sources, artificial intelligence and machine learning to transform that process. Real-time feeds of comprehensive property attributes such as measurements and condition of roofs and other property on the target site will enable instant and more accurate pricing, quoting and binding/renewal of property insurance. Aerial imagery, mobile technologies, artificial intelligence and computer vision will continue to transform property insurance products and processes, leading to better pricing accuracy, more profitable operations and, above all, better customer experience for policyholders.

The U.S. Department of Labor recently announced regulations that it will allow for the expansion of Association Health Plans (AHPs). But what exactly are AHPs, and what do they mean for small businesses? Essentially, AHPs allow small businesses to band together to purchase health insurance. The definition of a small business varies by state, with most states capping it at 50 employees, and California, Colorado, New York and Vermont at 100 employees. While we have seen efforts to promote AHPs since the 1980s, the new rules are different in that they also allow sole proprietors -- those who own unincorporated business by themselves -- to join the associations. Previously, sole proprietors could only buy individual coverage. The new rules allow carriers to introduce AHPs as early as September 2018, so we may see plans on the market as soon as this fall and early next year. How many small businesses and sole proprietors are affected? According to the U.S. Small Business Administration, there are more than 5 million small businesses in the U.S., which employ almost 40 million people. There are also about 23 million sole proprietorships, which will likely continue to increase along with the growth of the gig economy and number of freelancers in the workforce. The expansion of AHPs, therefore, has the potential to affect the lives of a huge number of people. Today, there are more than 35,000 associations in the U.S., organized by geography (state or greater metropolitan area) or industry. Some examples include your local Chamber of Commerce, the National Restaurant Association and the National Writers Union. Existing associations can be grandfathered in under the new AHP regulations, but new associations will have to meet the following criteria: 1) be in the same geographic area or the same industry and 2) have another business purpose other than offering health insurance. Existing options for these small businesses and sole proprietors aren’t going away. Small businesses can still participate in the small group market and Small Business Health Options Program (SHOP), while sole proprietors will still be able to purchase individual coverage. AHPs will just add another layer of choice to the market. See also: Why Start-Ups Win on Small Business   Lower premiums AHPs provide small businesses with the opportunity to offer health insurance at lower premiums, which is important because cost is one of their main concerns. Healthcare costs are an issue for almost everyone but are especially significant for small businesses, which are usually juggling between growing their business and paying for increasing costs of growing their team. AHPs are likely to provide lower premium options for two reasons: 1) They are exempt from requirements to cover the 10 essential benefits required by the Affordable Care Act, and 2) the law allows for more flexibility in the way AHP premiums are set. Thus, AHPs allow some small businesses to be able to offer health plans with lower premiums. In turn, these lower premiums may mean that businesses can offer insurance to their employees when previously they could not afford to do so. But with some caveats While AHPs offer lower costs for some, it’s also important to remember that you don’t get the same benefits as you would with a traditional health plan. The Affordable Care Act outlined certain essential benefits that have to be included in health insurance plans, including preventive care, ambulatory services, emergency services, hospitalization, mental health services, maternity care, prescription drugs, rehabilitation, laboratory services and pediatric care. AHPs are exempt from these regulations and may not cover some of these things. See also: Taking Care of Small-Medium Business   The new AHPs are better for relatively healthy individuals without high needs for medical services. If you need any of the services mentioned above, or just generally use care more frequently, be aware that AHPs may not cover all the benefits you frequently use. The expansion of AHPs makes it especially important to understand plan benefits before purchasing health insurance. Buyers should compare premiums, benefits and network coverage between AHPs and other existing options on the market (including fully insured or self-funded plans). By doing this research, you can make an informed decision and pick a plan that best meets your employees’ health needs. Conclusion Providing health insurance as a small business can be costly, and Association Health Plans are an attempt to lower premiums and increase choice. While AHPs will result in lower-cost options, it is important to remember the plan benefits may not be the same as those in more expensive health plans. Now more than ever, it is critical for consumers to do their research and make informed choices about health insurance. When in doubt, seek out the help of licensed experts who can guide you through your options and help you make the best decision for your business and your employees.

Although the general reaction to the selection of Atul Gawande as CEO of the Amazon/Berkshire Hathaway/JPMorgan Chase medical joint venture known as ABC was positive and although I continue to think he was an inspired choice, Dan Munro says in an article this week: "Not so fast!" 

The article, which I highly recommend, basically says the problem with U.S. healthcare is too entrenched to be solved even by an innovative venture with cachet and clout, run by someone Dan admires greatly. In particular, Dan argues, the U.S. won't be able to overcome the odd system that developed here during World War II, when companies were ordered to freeze wages but were allowed to offer health benefits tax-free. Because individuals pay for care with after-tax money, the U.S. relies more than any other country on employers to provide healthcare, introducing a series of mutually reinforcing distortions into the market that inflate prices and make a solution near-impossible.

I confess that, while I always try to find a solution, Dan's piece reinforces the pessimism I've been developing while reading "An American Sickness: How Healthcare Became Big Business and How You Can Take It Back," by Elisabeth Rosenthal, a Harvard-trained physician who left medicine and spent two decades as a reporter at the New York Times. She lays out in excruciating detail how all the players in healthcare—hospitals, doctors, Big Pharma, insurers, you name it—learned to game the system, and why they will just keep exploiting their edge. She offers a list of 10 rules of the "dysfunctional medical market," including:

• More treatment is always better. Default to the most expensive option.
• As technologies age, prices can rise rather than fall.
• More competitors vying for business ... can drive prices up, not down.
• There are no standards for billing. There's money to be made in billing for anything and everything.

Not a pretty sight.

She offers a series of ways to counter the dysfunctional forces, but they're mostly small ball, and I don't see any better options for now, given the constraints that she and Dan describe. She basically says to be demanding both about what treatments are prescribed and about prices—as ABC will surely be—but it seems we're stuck searching for incremental progress while we wait for the current system to finally become so onerous that something has to give. 

Have a great week anyway. 

Paul Carroll
Editor-in-Chief

The insurance industry has a last-mile issue. Insurers have known it for quite some time, and policyholders are quickly catching on. For consumers, the claims process is a critical moment – the one that often matters the most. Faced with the prospect of loss, they demand an experience that is speedy, familiar and customized to their needs. They want to feel confident that their insurer is acting swiftly to make them whole again. Forward-thinking insurers have invested in new processes to submit claims, including easier-to-use online and mobile platforms. The result - most can now offer claims filing and approval in just minutes. Yet, the way in which insurers pay people has been overlooked and remains slow, inconvenient and - well - frustrating. Nearly all insurers still pay people the old-fashioned way using paper checks or ACH. This experience falls far short of modern customer expectations. Waiting for a paper check to be printed, mailed and then deposited is unacceptable when a customer must repair a car needed for daily commutes or rebuild a home damaged by a natural disaster. Even an ACH deposit requires the customer to submit bank routing and account information – which no one has on hand, much less if they’ve lost their home to a flood – and can only be issued on a business day. Furthermore, managing checks that have been lost or issued but not cashed is an expensive process for insurers. Today, customers conditioned by online, on-demand and smartphone experiences are accustomed to instant everything, and the insurance industry’s outdated paper check payment model is a gut-punch in a time of a need. They are demanding more from their insurance partners. See also: The ‘Moment of Truth’ for Claims   The rise of instant payouts is helping to fill this void. Already in use across other consumer-facing industries like lending, banking and travel, real-time disbursements have become familiar to policyholders, and pioneering insurers are beginning to take notice. By putting funds in the hands of policyholders immediately upon approval – 24/7– and in a financial account of their choosing, insurers can gain a competitive advantage through increased customer loyalty, customer acquisition and operational cost savings. Those insurers exploring instant payout technologies or service providers should consider the policyholder experience as the beginning, middle and end of any successful digital payment transformation. The three key elements of that experience are convenience, choice and confidence. Convenience Policyholders submitting a claim are often inconvenienced - or worse - by unforeseen circumstances. Your goal is make them whole and do it in the easiest way possible. A push payment delivers the speed and simplicity that fulfills the promise of insurance. Unlike batch ACH payments or even slower instruments like paper checks, push payments are real-time delivery of funds 24/7 - even on weekends and holidays. Even better, the process of setting up a push payment is incredibly fast for the consumer. In contrast to ACH or a check, push has no process because it uses the same instruments and accounts that policyholders already know and trust. These are the cards they carry in their wallet or the accounts stored on their smartphones today. No need to look up a routing number, activate a new card or open an account. The way in which insurers communicate with policyholders about claims fulfillment should also make it as easy as possible to choose and manage a push payment. That means immediate electronic notifications that a payment is available and the ability to accept and select account destinations with the press of a button. Choice Historically, claims payments have been issued using a paper check or ACH deposit, constraining customers to the use of a traditional bank account. This limited the policyholder’s options and led to delays in them moving money to needed accounts to pay for auto repairs or begin work with a contractor. But policyholders pay for purchases in their daily lives using a wide range of accounts: debit or credit cards, online wallets and more. A successful claims payment should mirror this choice in accounts. Push payments allow insurers to send funds to a specific account designated by the policyholder (a familiar card or existing online wallet) for instant funding of ready-to-spend proceeds. To fully take advantage of this capability, insurers should find a push payment provider that reaches a comprehensive network of consumer accounts. As a benchmark, Ingo Money has built a network of networks that can fund more than 4.5 billion consumer accounts. Confidence By definition, push payments arrive in an account as fully guaranteed and ready-to-spend funds. In and of itself, this fulfills on the promise of insurance and inherently delivers the confidence that policyholders crave. The process of orchestrating a push payment can also instill confidence in your customers and lead to more loyal policyholder relationships. Insurers should support this with clear and transparent communications, helping policyholders understand when a payment is available, which accounts are supported and when funds have arrived. See also: How Robotics Will Transform Claims To deliver this confidence, be sure to tap a reliable push payments provider. Premier technology partners should provide reliable funding 99%-plus of the time. This is attainable by the reach of their network and ability to support millions of consumer accounts. In this way, it ensures redundancy to route transactions through multiple paths to the customer. The policyholder and business advantages of a modern, real-time last-mile payment process can no longer be ignored. Insurers that are not delivering on the promises of convenience, choice and confidence in payments risk being left behind by customers. With instant payouts, insurers can dramatically improve customer acquisition and retention, lower claims costs and claims leakage, reduce payments fraud and shorten claims cycles. Insurers that act now to embrace this shift will gain a competitive advantage in the marketplace and create distance from laggards that will increasingly be perceived as out of touch with the instant money economy.

Always the same story: 11 months after a costly customer acquisition, crafty price comparison players and other intermediaries helpfully knock on the customer’s door, show a smorgasbord of supposedly better value options and outline how easy it is to switch. For example, 16% of Americans shop around for car insurance every year, saving up to 47% of the previous year’s insurance cost. This represents an impact of up to $40 billion on the $500 billion car insurance market. What’s great for the consumer is a major headache for the insurance provider, which often has to join in the dreaded price war to keep a customer. In many other industries, having a good brand is a bulwark against a price race to the bottom. But for immaterial and low-involvement products such as insurance, this is easier said than done. It’s hard to stand out in the customer’s mind and become a provider of choice. But there are a few things insurance providers can do to survive the first-year itch and give the customer an experience that will greatly increase the odds that they’ll stick around for another year. Before we get into the specifics, it’s important to understand one key principle of loyalty, which is best illustrated by Maya Angelou’s famous quote:

“People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

That’s why discounts don’t lead to loyalty. Sure, it’s sweet to get a $150 bonus for staying with your current life insurance provider, but once the money hits the bank account it just dissolves into the family budget, never to be seen again. It’s not memorable, and it sure as heck doesn’t make the recipient feel much of anything. Contrast that with what you could actually DO with $150: What if you gave your customers an experience such as a kayaking tour or a candle light dinner for two? The cost would still be some $150, which is close to what a bonus or discount would amount to — but the effect is far stronger. Why? Because the customer associates the experience with you. In the back of their minds, they know, as they’re tucking into their entree or dipping their oar into the turquoise waters, that this experience comes courtesy of Insurance Co. And that association works on a subconscious basis and lasts far longer than any discount could. You may argue: Why wouldn’t customers be able to do it themselves with the $150 check they received from you? After all, they just received a discount of $150, so you might as well encourage them to spend it on that kayak tour, right? All without going through the hassle of organizing it on your end. Not really. Most people don’t operate that rationally, and hardly anyone would take a windfall gain and spend it on something specific. It’s more restrictive to give them $150 in kayak or dinner vouchers, but that restriction means that they are far more likely to use it. And you WANT them to use it. See also: What Really Matters in Customer Experience The effect is obviously not limited to dinner experiences, although that one is quite the front runner when it comes to a memorable experience at an affordable price. Other perks that suit an insurance company’s first-year-itch-avoidance budget would be:

• A luxury case of wine
• Two tickets to a rock concert or musical of the customer’s choice
• An afternoon at the local spa
• A cooking class
• VIP cinema tickets for the entire family (customize it by asking them how many tickets they want and providing any number of them — within reason)

It’s important that the item or experience you provide be non-utilitarian. A new vacuum cleaner or blender won’t do the job as well as a cheese and wine tasting night out. To be a memorable experience, it needs to be non-quotidian and give a hint of luxury or, dare I say, décadence. Yes. French spelling. So how much can it cost? Well, that depends on how much you can afford. If you, with a heavy heart, normally provide a discount of $150 to keep a customer with itchy feet, providing an experience worth $150 is the starting point. More bang for your buck through breakage and volume discounts But that $150 can go a much longer way and you’ll be able to magically turn it into $200 or more in the following way: First of all, if you do this at scale, you’ll be able to secure discount rates from the vendors. A restaurant chain will gladly give you a discount if you buy 100 candlelight dinners from them. Second, there’s breakage. We’ve written extensively about the concept — in short, breakage is the rate of unredeemed dinner experiences (if we can stay with the dinner example). Some people will end up not redeeming their gifts. How should you deal with this, though? On the one hand, if you want to focus on short-term profit, this is good for you, because the user has accepted to stay with you for another year without creating any cost — because they haven’t redeemed, you can now use their voucher for someone else. On the other hand, if you are focusing on brand building and are willing to forgo the short-term profit for long-term customer loyalty, nudge customers toward redeeming, so that they can indeed build that positive association of their experience with you. Whichever route you choose to take, industrywide breakage rates are around 30% and, even if you nudge people toward redeeming, are unlikely to drop below 5%, so make sure you are including this in your calculations. See also: It’s All About the Customer Journey And the results? Our clients experience an average 15% reduction in customer churn by offering personalized gift cards to their customers. For more on how to boost loyalty and retention among subscription customers, read our brand-new ebook, “The Ultimate Guide to Loyalty and Retention.” The key message is: Stand out. Provide an experience. Do what others don’t. Give the customer a positive feeling for staying with you, even if you are not the cheapest option on the market. Here’s to the end of the first-year itch!

Even though senior leaders in many insurance organizations realize that innovation is an imperative in the current environment, there are many reasons that success is difficult. There are some legitimate roadblocks, but many of the reasons that innovation efforts are either never started or, more troubling, never successfully completed are falsehoods. In the first installment of this three-part series on Myths of Insurance Innovation, we covered strategic complacency: those myths that are a function of misreading the current environment and lead to a lack of urgency. As we saw in our last post , even though the importance of innovation efforts is high, the urgency is low, and other concerns take precedence. Financial Myths Here, we look at a problem closely related to the lack of urgency: the canard surrounding innovation and financial performance. One of the key ways that financial concerns inhibit innovation decisions is through a focus on quarter-to-quarter results. Innovation efforts are often seen as hurting financial performance. Many insurers have multiple development efforts in flight at any time competing for resources, and the list always grows. There are two ways to add an effort: either put it into the current work queue, adding the attendant costs, or shift resources by slowing or stopping work on an existing project. But adding expense reduces corporate financial performance, and diverting resources from needs such as critical infrastructure can be a poor choice. Because there is little urgency, the innovation project can be tabled. The rationale is that, once the workload has been reduced and critical infrastructure improvements have been made, then the work on innovation can be started. See also: Can Insurance Innovate?   Unfortunately, the day when urgent tasks have been completed and resources have been freed up for innovation often never arrives. Additionally, as financial performance is pressured by market cycles and underwriting performance, it is easy to postpone innovation to a time when underwriting results are sure to be better. But hard markets are further apart and of shorter duration because new pricing and underwriting tools and processes enable faster course correction. Concerns about cannibalizing revenue from profitable business units may manifest themselves in two primary ways. First, leaders of the organization may be concerned about the overall impact on corporate performance. Second, business unit managers will fight to protect their resources – they not only need to protect their people and initiatives, but the battle for resources also determines status and potential for career advancement. In fact, companies often aren’t playing a zero-sum game with resources. In many instances, net new revenue from additional products easily offsets the revenue loss in the existing product line. An even bigger financial myth is that innovation is only for the largest carriers. The assumption is that successful innovation requires dedicated labs, large staffs and huge budgets. This is understandable, given the nature of how our industry deals with change. The press is full of stories of how giant insurance brand Y built this amazing offsite lab with 30 full-time staff. The result of this multimillion-dollar investment? An amazing new product or process that is revolutionizing some aspect of the insurance ecosystem. It is easy to see why this myth has come to be: The successes are often well-funded efforts. But there are as many highly effective improvements being fielded that aren’t heralded. See also: InsurTech: Golden Opportunity to Innovate   The truth is that most successful innovation efforts are driven by small teams with limited resources. With the right tools and processes, two to five individuals working within the boundaries of well-chosen constraints are able to quickly formulate, develop and launch innovations that will scale and quickly return multiples of the original budget. Constraints on financial and time resources are actually very effective in focusing a team’s efforts because the limits encourage timely decisions and trade-offs.

Earlier this year, industry titans Amazon, Berkshire Hathaway and JP Morgan Chase (ABC) announced a partnership that would incubate a separate, non-profit entity aimed squarely at healthcare. Given the seed stage of the collaboration, the announcement was necessarily vague, but it did refer to an intent to address healthcare for their employees, improve employee satisfaction and reduce costs. The partnership has now announced the selection of noted surgeon, best-selling author and public health researcher Dr. Atul Gawande as the CEO of the unnamed entity. It’s a bold marketing step to be sure – and I have nothing but respect and admiration for Dr. Gawande – but neither employers nor new ventures will disrupt the fiscal burden of healthcare. The trajectory of the ABC entity is still unknown, of course, but, like other high-profile announcements before it, I think it’s really targeting a fairly traditional group purchasing business model. At least that was the implication that CEO James Dimon gave to nervous healthcare banking clients at JPMorgan shortly after the press release hit this last January. See also: Healthcare Disruptors Claim War Is Won   In fact, there are a number of these group purchasing entities already in existence – and some have been around for decades. With about 12 million members, Kaiser Permanente is arguably the largest. It operates as a non-profit because the fiscal benefits should logically accrue to member companies and not the entity itself. Group-focused healthcare initiatives suggest that there will likely be a positive effect on ABC’s 1 million plus employees, but it won’t make systemic changes to our tiered – and expensive – healthcare system as a whole. Here are the top 10 reasons why this latest venture – or really any group of employers – can’t fundamentally change U.S. healthcare.

1. Employer-sponsored insurance (ESI) isn’t the product of intelligent system design. In fact, there’s no clinical, fiscal or moral argument to support this unique financing model at all. It’s quite literally an accident of WWII history, and America is the only industrialized country that uses employment as the governing entity for health benefits. We could have changed this accidental system design decades ago, but we never did.
2. Whatever the business of private industry (either privately held or publicly traded), unless  a company is literally in the business of healthcare, the vast majority have no specific healthcare domain expertise – nor should they seek to acquire it, because it will never be a true focus or core competency. ABC may purchase (or build) components of that domain expertise for their employees, but any of those fiscal benefits won’t auto-magically accrue to other companies – and, let’s not forget, at least some of those other companies are direct competitors to Amazon, Berkshire or Chase.
3. Unlike Medicare or Medicaid, ESI (and commercial insurance, more broadly) supports inelastic healthcare pricing because it is literally whatever the market will bear based on group purchasing dynamics. This is also why Obamacare health plans are entirely dependent on a laundry list of subsidies. As individuals, few Americans can afford unsubsidized Obamacare plans outright. This also makes it entirely pointless to go through a lengthy legislative repeal process, because it’s relatively easy to simply cripple Obamacare outright. Just remove the fiscal subsidies – which is exactly what’s happened (or planned).
4. The larger the employer (or group), the larger the fiscal benefit to the individual employer because of the group dynamic. That’s a compelling argument in favor of merger mania (leading to mega groups of millions of employees), but any of those effects don’t just trickle down to small employers. In fact, new business models (some with enviable unicorn status in the sharing economy) are designed to ignore health insurance or health benefits outright. They may funnel employees to group-purchasing options – but that’s a marketing sleight-of-hand to avoid the messy complexities and fiscal burden of managing ESI outright.
5. Like most other employment functions, ESI — and the employment process known as open-enrollment — is arbitrarily tied to our annual tax calendar, but that has no correlation or applicability to how healthcare actually works. We should all contribute (through taxation) to our healthcare system, of course, but a period of open enrollment (with a very specific number of days) serves no clinical or moral purpose (other than to continually monitor for pre-existing conditions and possible coverage denial).
6. While commercial titans capture all the headlines for many industry innovations (including high-profile healthcare initiatives like the ABC one), about 52% of private industry (either privately held or publicly traded) is made up of companies with fewer than 500 employees. Each of these employers is effectively its own tier of coverage and benefits. That works to support tiered (highly variable) pricing, but the only purpose of that is to maximize revenue and profits for participants in the healthcare industry.
7. Big employers are notorious for binge (and purge) cycles of headcount that results in a constant churning of employees. Today, the average employment tenure at any one company is just over four years. Among the top tech titans — companies like Google, Oracle, Apple, Microsoft and, yes, Amazon – average employment tenure is less than two years. This constant churning of benefit plans and provider networks is totally counter-productive because it supports fragmented, episodic healthcare – not coordinated, long-term or preventative healthcare. Insurance companies tried to tackle this – only to be penalized when those efforts (which led to healthier members) were delivered straight to their competitors at the next employer.
8. ESI represents a fourth party — the employer – in the management of a complex benefit over a long period. That function is administratively difficult for even three-party systems (payer, provider and patient) in other parts of the world. So why do we need a fourth party at all? We don’t.
9. ESI is heavily subsidized through local, state and federal tax exclusions. While this hasn’t been studied at great depth, it’s not a trivial amount. By some estimates, the local, state and federal tax exclusions combined amount to about $600 billion per year – which makes tax exclusions tied to ESI the second largest entitlement behind Medicare. It’s effectively corporate welfare specifically designed to support expensive healthcare pricing.
10. The employer contribution to ESI is significant – typically more than 55% of the cost for PPO coverage (family of four) – but this also helps employers keep wages artificially depressed. In fact, in recent years, the galloping cost of healthcare has tilted unequally to employees – and shifted away from employers. The days of sharing those annual cost increases equally are clearly over.

The combined effect of ESI – again, uniquely American – is the most expensive healthcare system on planet Earth and one of the biggest systemic flaws behind this ever-growing expense is ESI. As a distinctly separate flaw (I call it Healthcare's Pricing Cabal), actual pricing originates elsewhere, of course, but employers really have no ceiling on what they will pay – especially for smaller (fewer than 500) employer groups. This year, America will spend more than $11,000 per capita just on healthcare, and the average cost of PPO coverage through an employer for an American family of four is now over $28,000 – per year. [caption id="attachment_32169" align="alignnone" width="570"] Chart by Dan Munro; Milliman Medical Index 2018[/caption]